Inflation: the word you don’t want to hear. But burying your head in the sand doesn’t protect your portfolio...
While it’s simply a measure of the general increase in the price of goods and services over a set time period, inflation’s notoriety is found in the broad implications it can have on both the macro and micro levels. For the former, it heavily influences monetary policy and interest rates that ripple into the economy’s capital investments and productive capacity. For the latter, one glance at your recent higher-than-normal grocery bill tells you everything you need to know.
The end of 2021 finished with the Consumer Price Index sitting at 4.8%, as increased prices for food pushed up the cost of living at the fastest rate seen since 1991. With inflation numbers peaking higher than they have in over a decade, the fault of the surge can be directly correlated to lockdowns lifting and a return to normal spending habits. It’s potentially heading us in the direction of an oversupply relative to demand and much higher inflation. The question is, then, how do you hedge against inflation?
What is the Best Hedge Against Inflation?
It’s unclear if the current state of inflation will disperse shortly after the pandemic ends or is one that will become a lingering structural problem. As supply-chain issues and labour shortages continue to drive up prices overall, it’s likely that increased inflation will be prolonged. In either case, having a plan in place to hedge against inflation is a forward-thinking manoeuvre that will help boost confidence in your investment portfolio.
Your appetite for risk dictates the balance of equity investments versus fixed-income investments. Simply put, an inflation hedge is an investment designed to protect your portfolio against a decrease in our currency’s purchasing power, no matter where your investments or comfort levels lie. An effective hedging strategy is one that invests in an asset class that is expected to maintain a steady holding to offset risk, e.g., real estate. While there is no cure for inflation, investing in real estate is an actionable countermeasure as we weather the current storm.
Investing with Inflation in Mind
Whether you’re a risk taker or risk averse, real estate is an equity investment that can help balance, diversify and hedge your portfolio against inflation, while maximizing returns. The real estate market has historically proven its worth as a good hedge against inflation, as long-term property prices generally trend with steady increases. As inflation rises, subsequently property values do, too. The bottom line: real estate investments work well with or without inflation.
Because real estate is a popular inflation hedge that draws in savvy investors—especially within the current housing boom—it keeps values high enough to verge on defining it as self-fulfilling. These investments can keep pace or, in terms of appreciation, even exceed inflation under the right circumstances. So, with the real estate market being highly competitive at the moment, some experts say real estate investments are a good bet since mortgage rates are low. However, with real estate markets outside of major centers flourishing in the wake of the pandemic, the bet is looking more and more sure as changing attitudes are moving people outside of the urban primary market.
How to Hedge a Real Estate Portfolio with Parvis
The ideal way to invest in real estate, especially in uncertain times, without having to ante up a fortune is with Parvis. As an investor, it means you can write smaller cheques, diversify your portfolio, and invest in high-quality real estate projects you wouldn’t normally be privy to otherwise. The digital-forward platform is supported by industry experts and gives you exclusive access to investment opportunities.
The Silver Lining
Inflation is reaching levels we haven’t seen in years. (Even gold’s reliable reputation as one of the best investments to hedge against inflation is wavering.) To hedge against it and protect your portfolio, investing in real estate is an increasingly favourable option, especially when it’s digital by design to adapt to the evolving markets. While the current economic environment may be troubling for some, the silver lining is found by the investors leveraging hedge investment opportunities on the Parvis Platform.
About Parvis
Parvis is building the next generation of real estate investing. Our blockchain-powered digital platform democratizes access by bringing quality real estate opportunities to more individuals. Through exclusive access to diverse, high-quality investment projects on the North American market and a user-focused, state-of-the-art platform, Parvis is becoming the go-to marketplace for real estate investing. We are bridging the gap between traditional and digital finance by offering a marketplace that automates compliance tasks, providing in-depth analytics.
